Friday, 19 July 2013

That £41bn Olympic Boost in Full

It took a little time, but I finally got to the point of finding the independent report for the DCMS by Grant Thornton (independent as in, funded by the DCMS). The summary is more than enough to tell you how they worked it out:
Underpinning these impacts is the boost to demand from the £8.9 billion Public Sector Funding Package and the additional £2 billion of privately financed spending by the London Organising Committee of the Olympic and Paralympic Games(LOCOG).

The construction of the Olympic Park in particular provided a major stimulus to the construction sector at a time when it had been hard hit by the recession. The 'administrative and support'sector also derived substantial benefits but all sectors derived some benefit, with ‘manufacturing’seeing significant supply chain impacts.

Developments in East London such as Westfield that have been catalysed by the Olympic Park development have generated further benefits for the local area.
These estimates take account of the spread of impacts down the supply chain and the resulting generation of economic activity through consumer expenditure
At the heart of this is a fallacy, that spending, in itself is a benefit, because it creates jobs. Bastiat was complaining about this sort of talk 250 years ago, but the people at DCMS have cooked the books still further by talking about how money moves on.

So, a bloke building a stadium isn't just the beneficiary. It's also the supermarket that he shops at, the bloke who repairs his car, the cinema where he goes to the pictures. But of course, none of these people holds the money. They are simply transferring money on. By the way the DCMS is thinking, if I gave Mark Wadsworth £10 and he gave me £10 back, I'd have created £20 of economic benefits. And yes, that's clearly weapons grade bullshit.


Bob E said...

The BBC report on "the wonderful amazing news" ( some choice "I'm not saying it isn't true, but" quotes :-

... sports economist Stefan Szymanski said it was impossible to tell how much of the economic activity could be put down to the Games. "It's almost like a bit of creative accounting. There's no way of testing whether what they're saying is really true."

... Jonathan Portes, director of the National Institute of Economic and Social Research and a former chief economist at the Cabinet Office, said attributing the economic benefits to the Olympics was "a little far-fetched to say the least".

And the Beebs own Stephanie Flanders : "It would be rude to call the benefit numbers flakey. But most economists would say they were deeply speculative, at best" and ending with, to chime nicely with your demolishing of the claims "The implicit assumption seems to be that - had it not been for the Olympics - that £9bn would simply not have been spent".

adamcollyer said...

Even Stephanie Flanders at the BBC has been putting the boot into that report.

Bob E said...

AC - pipped you by mere seconds ... but as your link to the article actually works, and mine doesn't, the true victory is clearly yours.

Mark Wadsworth said...

You could try giving me £10 and see what happens.

The Stigler said...

Bob E,
I've read Szymanski's stuff. He basically reckons that most state-funded sporting events are only good as a party.

It's interesting how the BBC seem to have turned. They seem to be overwhelmingly negative towards this news in a way they weren't from 2005 to 2012. Probably that they knew London would give them a boost.

Perhaps not. I suspect you'd spend it on fags and art supplies.

adamcollyer said...

It is indeed interesting, TS. However, to be honest I suspect the long term benefit to Britain will be quite large, because of the general good will towards the UK that will have been generated. I think the government would get more credit if they were honest enough to admit that they don't have a clue what the exact benefit is.

Unknown said...

This is one of, if not the biggest problem with economics right now. It seems like even most economists think in this ridiculous way. Certainly, the vast majority of journalists and the public seem to think this way. They hear that the olympics created construction jobs and jobs/business up the supply chain so that must be good they reckon. But almost nobody seems to stop and think "but will there be a net benefit to using billions of pounds worth of finite resources like oil, iron, copper, man hours, land. And even if there is a net benefit, could we use that stuff for something more useful than a sports stadium? Because once that oil is burned, its gone for good."

But no, it created "business" and "jobs" so it must be good. But this is the same logic as paying people to dig holes and fill them up again. (Was it Keynes who espoused that nonsense?) Which is of course idiotic. Equipment would depreciate, workers would need extra food and water due to physical exertion, and time spent digging would not be able to be used to retrain. But this "ditch digging" justification is used on a daily basis by one pressure/activist group or another. Or a clueless economist or journalist. Or a member of the public naive enough to think economists and journalists know what they are talking about.

Just in the last few days Greenpeace or Friends of the Earth used this reasoning to justify government support of green energy. One of the first arguments they gave was that investment in green energy will create X number of jobs. Do these morons really not understand that this is totally irrelevant? All that is relevant is if green power is economically viable. (Which is not as simple as comparing unit prices, but thats another topic.)

Unknown said...

Also, trying to explain that ditch digging is nonsense seems to go right over peoples heads. They have been brain washed with circular logic for so long it seems that they just cant get something so simple.

Same with stimulus spending. So many people who cry for government to spend to boost growth dont for a second stop to consider if the spending actually creates an economic benefit. All they think about is drool drool drool higher GDP drool drool drool.

But by the definition of GDP, government spending increases GDP regardless of its real world benefit to society! So again, government could employ the ditch diggers (or sports stadium builders, or run a car scrappage scheme), which is a net COST to society, and suddenly we have GDP growth. But we are actually poorer as a result! We have consumed FINITE natural resources for possibly no benefit. So, wasted, rather than consumed, is a better word. But because a number on a screen (GDP) increased, that is justification enough for so many people.

All that matters is if it has the highest net benefit of all choices and if we have the resources to spare. And if we do, then the spending should go ahead regardless of whether we are in a recession or not. Its not stimulus, its simply investment.

Derek said...

I've always thought that that GDP is a very rough measurement to use for the size of an economy. What it really measures is how much people sell to each other which is not quite the same thing.

Consider an economy in which everyone is a self-sufficient smallholder. They grow their own food; they weave their own cloth. They build their own houses; they make their own jam. But their GDP is £0 because they don't sell anything to each other. If one year they decide to sell each other some of that jam in order to get a bit of variety on their bread, suddenly the GDP rises to £16,000,000 even though no more jam than usual has been made.

That can't be right.